What Is a Reverse Mortgage & Is It the Right Fit for You?

A reverse mortgage is a financial option specifically designed for homeowners aged 55 and over. Under a reverse mortgage, you can get a loan secured against your Kelowna home’s value. This type of mortgage will enable you to convert into cash up to 55 percent of the value of your home.

  • You will maintain ownership of your home while under a reverse mortgage.
  • You won’t pay monthly mortgage payments.
  • You will repay the loan only if you relocate or sell the property.
  • You are only required proper maintenance of your residential property and payment of its taxes and insurance.

A safe and convenient solution for Kelowna homeowners

A reverse mortgage, therefore, is a safe and convenient solution for Kelowna homeowners aged 55 and over to monetise their home equity for whatever purpose they want. You can use the mortgage’s loan proceeds for monthly expenses, home renovation, travel, etc.

The CHIP Reverse Mortgage of HomeEquity Bank dominates the Canadian reverse mortgage debt market. HomeEquity Bank offers CHIP (formerly called Canadian Home Income Plan) across the country directly or through a mortgage broker. CHIP holds a 99 per cent share of the country’s reverse mortgage debt market that exceeded the $5 billion mark in June 2021.

The amount that you can get under CHIP ranges from a minimum of $25,000, with no maximum lending. The largest deal to fund from an Okanagan Mortgage Broker is $3 Million. How much you will actually get depends on your age, the appraised value of your home, and its location. To qualify, the home must also be your primary residence, meaning you must live there for at least 6 months a year.

Terms and interest rates

The CHIP Reverse Mortgage lending has no term, and the contract runs in perpetuity and is not cancelable. The only person who determines the end of a CHIP lending is the borrower. You can expect interest rates to typically be higher than a regular mortgage.  

In September 2020, HomeEquity Bank launched CHIP Open, a new variation of the standard CHIP Reverse Mortgage. CHIP Open has no set term, and is an open product that can be paid off at any time.

Like the standard CHIP Reverse Mortgage, its new variant allows a loan of up to 55 per cent of the appraised value of the qualified borrower’s home. CHIP Open is designed as an immediate short-term financial solution with no prepayment penalties. CHIP Open borrowers can convert to a standard CHIP Reverse Mortgage if they determine that a short-term solution to their financial need is no longer required.

With the CHIP Reverse Mortgage, you have the option to draw the money from your loan in full. Alternatively, you can also draw funds monthly from the loan as supplemental income or you can take just a portion of the loan proceeds and the rest monthly.

Advantages of a reverse mortgage

A reverse mortgage offers several advantages to qualified borrowers. For one thing, you retain ownership of your home, and the reverse mortgage funds you obtained come tax-free.

You can also spend the loan proceeds any way you want. Furthermore, money obtained from a reverse mortgage doesn’t impact the Old-Age Security or Guaranteed Income Supplement you may be receiving as a Canadian retiree.

Unlike in a conventional mortgage, you don’t need to service the reverse mortgage with regular payments. The loan becomes due only if you sell or move out of your home. The reverse mortgage also becomes payable if the borrower or the last home titleholder passes away.

There is also an option in the reverse mortgage to fully repay at any time its principal and interest. However, you may have to pay a fee for this early payment. The exception here is the new CHIP Open with no fee for early repayment.

Reverse mortgage disadvantages

A reverse mortgage has certain features that may be disadvantageous to some borrowers. First is its interest rates which are higher than those charged in a traditional mortgage.  

Residences with an appraised value below $200,000 are also ineligible for a CHIP reverse mortgage.

The accumulated interest in reverse mortgage can also erode your home equity. Hence, there may be less left in your estate as inheritance for your children or beneficiaries.

A reverse mortgage, moreover, entails costs which may be higher than a conventional mortgage. For instance, you face additional legal fees, as lenders typically require reverse mortgage borrowers to get independent legal advice.

If you are interested in learning more about CHIP Reverse Mortgages or would like to find out how much you are potentially eligible to receive, please feel free to contact me at any time.